🔥SUMMARIZING CHANGES IN FINANCIAL POSITION [Part : 4]🔥

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ALL ABOUT ACCOUNTING : 43rd BLOG

         💎ACCOUNTING💎

★ Accounting exercise and practices : 
Lesson : 4 [Part : 4]

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Today's discuss remaining part of summarizing changes in financial position 

                             So let's discuss ....


★ SUMMARIZING CHANGES IN FINANCIAL POSITION :

 ⭐ ACCOUNT BALANCES :

Once journal entries have been made and the general journal completed, the account balances for each ledger account must be determined. This is done by listing all of the debits and credits by ledger account into the general ledger. The process of copying journal entry information from the general journal to the general ledger is called posting. In the posting process, journal debits become ledger account debits, and likewise, journal credits become ledger account credits. An account balance can be determined at any point in this process by adding or subtracting the debits and credits listed in the ledger account. 

It should be noted hear that balance sheet accounts are a summary of the organization assets, liabilities and equity since inception.  Therefore, these accounts will have on going balances which are carried forward from period to period. These are referred to as opening balances. For example, if a balance sheet dated 31-03-2020 showed a cash balance of ₹ 50,000, This balance would be carried over as the opening balance on 01-04-2020. In contrast, income statement accounts reflect revenue and expenses over a specified period of time and therefore are not carried over from accounting period to accounting period. For example, an income statement for the 12 month period ending 31-03-2020 showed that the organization earned ₹ 50,000 sale of goods that period. When the next accounting period begins on April 01 2020 the sale a/c will begin with a zero balance since it will be measuring the sales earned fron 01 April 2020 to 31 march 2021.

The following example includes a number of journal entries which affected the cash account. In this example, the account balance is recorded after each journal entry and the opening account balance of ₹ 50,000 has been carried from the previous period. 

-- This example shows only one side (asset - cash) of the accounting entry for each transaction. In double entry accounting, an equal entry must be made in another account.


* 
Lets create a Cash A/C Statement of ABC ENTERPRISE against this transactions :- 




1. Cash withdrawal from bank account on date 05-05-2020 is ₹ 10,000.

2.. Salary paid to staff on date 04-05-2020 is ₹ 20,000.

3.. Office expense incurred on date 06-05-2020 is ₹ 5,000.

4. Interest received from xyz creation on date 07-05-2020 is ₹1,000.

5. Maintenance paid to ABC Society ltd.  On date is 08-05-2020 is ₹2,000.

6. Cash paid for postage / Courier on date 06-06-2020 is ₹ 1,000.

- prepare a Cash A/c statement for ABC ENTERPRISE against above declare transactions. 

Cash A/C :
Date.          Doc..  Particular     Debit      Credit    Balance 
Opening balance 50,000   50,000 (Dr.)
05-05-2020.    1.Bank A/c10,000  60,000 (Dr.)
04-05-2020.    1.Salary payable 20,00040,000 (Dr.) 
06-05-2020.    2.Office exp.  5,00035,000 (Dr.) 
07-05--2020.   2.XYZ Creation1,000 36,000 (Dr.) 
08-05-2020     3.ABC Society ltd. 2,00034,000 (Dr.) 
06-06-2020.    4.
Postage 1,00033,000 (Dr.) 
Total : 61,00028,00033,000 (Dr.) 

Each debit and credit entry in the cash account represents a cash receipt or a cash payment. The account of cash Owned by the organization at a given point in time is the account balance for that date. The account balance is equal to the difference between the total debits and total credits in the account. If total debits exceeds total credits then the account is said to have a debit balance; whereas if total credits exceeds total debits then the account has a credit balance. 

Therefore in the above example, the account balance in the cash account is ₹33,000. Since debit were greter than credits the cash account in our example has a debit balance. 

In the cash account example, increases were recorded on the left or debit side of the account while decreases in cash were recorded on the right or credit side. The increase were greter than the decreases and the result was a debit balance in the account. 

All asset accounts normally have a debit balances. In fact, the ownership of cash, land or any other asset indicates that the increases (debits) to that asset have been greter than the decreases (credits). The follows common sense as it is difficult to imagine an account for an asset such as land having a credit balance because this would mean that the organization had disposed of more land than it had acquired and had reached the impossible position of having a negative amount of land. Likewise, all expense accounts normally have debit balance. Liability, Equity and revenue accounts normally have credit balances. 








Remaining part of  summarizing changes in financial position discuss in 44th blog... 

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